Income Statement
For the Quarter Ended March 31
Sales (28,500 units)
$1,140,000
Variable expenses:
Variable cost of goods sold
$456,000
Variable selling and
199,500
655,500
administrative
Contribution margin
484,500
Fixed expenses:
Fixed manufacturing overhead
283,500
Fixed selling and administrative
214,500
498,000
Net operating loss
$(13,500)
Ms. Tyler is discouraged over the loss shown for the quarter, particularly because she had planned to use the statement as support for
a bank loan. Another friend, a CPA, insists that the company should be using absorption costing rather than variable costing and
argues that if absorption costing had been used the company probably would have reported at least some profit for the quarter.
At this point, Ms. Tyler is manufacturing only one product—a swimsuit. Production and cost data relating to the swimsuit for the first
quarter follow:
Units produced
31,500
Units sold
28,500
Variable costs per unit:
Direct materials
$7.40
Direct labor
$6.80
Variable manufacturing overhead
$1.80
Variable selling and
$7.00
administrative
